Business loans for high-risk industries

Even if you’ve been in business for a few years, have excellent credit and are turning a profit, your business still might struggle to qualify for a loan if it’s part of a high-risk industry. Traditional lenders like banks don’t want to take the chance that your business might fold before you can pay back your loan. While your options are limited, you still have a few to choose from.

What do lenders consider a high-risk industry?

Lenders generally consider industries high risk if they are more likely to fail. For example, industries like alcohol and gambling might be considered high risk because they’re subject to regulations that frequently change. However, other industries like restaurant and retail might be seen as risky because revenue isn’t always guaranteed.

Industries that are less profitable because of changes in technology, like newspapers, are often considered high risk as well.

Industries that might struggle to get a loan

Some common industries that are considered high risk include:

Compare business loans for high-risk industries

Top 4 lenders that work with high-risk businesses

Lender	Type of financing	Loan amount	Cost	Eligibility requirements
Bluevine	Invoice factoring	$5,000 to $5,000,000	Factor fee of 0.2% to 1.3% per week	530+ personal credit score, 3+ months in business, $100,000+ annual revenue	Read review
SmartBiz	SBA loans	$30,000 to $5,000,000	4.75% to 7.00%	650+ personal credit score, US citizen or permanent resident, 2+ years in business, $50,000+ annual revenue, no outstanding tax liens, no bankruptcies or foreclosures in past 3 years, business in eligible industry	Go to site
First American Merchant	Merchant cash advances	by lender	Varies by lender	Varies by lender, cannabis-friendly options	Read review
Lendistry	Business term loans	$250,000 to $3,000,000	Starting at 6.75%	680+ personal credit score, 2+ years in business	Read review

What types of business financing can high-risk industries qualify for?

You might not be able to get a bank loan if you’re in a high-risk industry. But you aren’t totally without options. In fact, you might even be able to qualify for favorable rates if your business can back the loan with collateral, business assets or a personal guarantee. Otherwise, be prepared to pay.

Best for businesses that rely on invoices: Invoice factoring

Invoice factoring technically isn’t a loan but an advance on your business’s unpaid invoices from government agencies and other business clients. How does it work? You sell your business’s unpaid invoices at a discount to a factoring company, which pays a percentage of their value in advance. The factoring company then collects payments from your clients and gives your business the rest of the money, minus a fee.

Factoring is one of the easiest types of financing to qualify for, but it can be expensive. Your business might also be required to sign up for several months or years of factoring, which can make it difficult to qualify for other less-expensive types of financing in the future.

Best for businesses that rely on credit card sales: Merchant cash advances

A merchant cash advance (MCA) is similar to factoring, but for customer-facing businesses like retailers or restaurants. It works by giving your business an advance on future sales, which you repay plus a fixed fee with a percentage of your daily bank deposits or credit card transactions.

Like factoring, an MCA is easy to qualify for, but also one of the most expensive types of business financing out there. It can make it hard for your business to grow and is best left for emergency situations.

Best for emergency expenses: Short-term loans

Don’t qualify for factoring or an MCA? Some alternative lenders offer short-term loans that work a lot like an MCA, where your business pays a fixed fee instead of interest. Others offer something closer to your traditional term loan with smaller amounts, higher rates and 18 months or less to pay back the loan.

Short-term loans typically come with daily or weekly repayments and, like MCAs and invoice factoring, are expensive. But you usually don’t need collateral or good credit to qualify, and the turnaround time can be as fast as one day.

Best for purchasing a specific item: Vehicle and equipment loans

Vehicle and equipment loans had the highest rate of approval out of any type of financing, according to a 2017 Federal Reserve survey. These loans are secured by the item you’re purchasing, making them a viable option for businesses that might not qualify for an unsecured loan and don’t have enough assets to use as collateral.

Still, some lenders might have some industry restrictions, so check before you apply. You’ll likely have to make a down payment of 10% to 20%, and you run the risk of losing the item you bought if your business can’t pay back the loan.

Best for financing large projects: SBA loans

Loans backed by the Small Business Administration (SBA) come with some of the best rates and are geared toward businesses that have struggled to get financing elsewhere. Not all industries are eligible for SBA loans, but several high-risk ones are. SBA loans go up to $5 million and can be used for a variety of purposes, from covering a large expense to buying real estate.

However, they’re one of the most difficult types of financing to qualify for. This is partly because the SBA looks at factors other lenders don’t even consider, like your criminal record. The application is long and involved, though you can hire services like SmartBiz to cut down on the paperwork. Be prepared for the long haul if your business applies for one of these loans.

• Industries that aren't eligible for an SBA loan

  • Life insurance
  • Lending (some pawn shops might qualify)
  • Gambling
  • Cannabis
  • Nonowner-occupied residential real estate (unless you use the loan to improve the property)
  • Adult entertainment
  • Lobbying
  • Oil and gas

Looking for a loan? Go local or online.

Local banks, community development financial institutions (CDFIs) and online lenders have the highest approval rates, according to the Federal Reserve. If your business is in a high-risk industry, consider starting with these types of lenders. CDFIs and small banks are typically designed to serve their local communities and might be more forgiving than other lenders. Online lenders have less overhead costs and often charge higher rates, so they can afford to take on more risk.

Try to stay away from large banks and credit unions — both rejected nearly half of all business loan applicants in 2017.

What other factors can make a business seem risky?

Your business’s industry isn’t the only thing that can make it difficult to get a loan. Lenders often consider these factors when looking at your application.

Limited time in business

The less time your business has been around, the more of a risk you pose to potential lenders. In fact, many lenders require businesses to be up and running for at least a year or two before they’re eligible for financing. Newer businesses might have more luck with online lenders, whereas startups should consider alternatives like personal loans or crowdfunding.

Low revenue

How much your business makes each month is also important when applying for a loan. Lenders like to see that your business consistently brings in enough money to afford loan repayments. Many won’t work with small businesses that make less than $10,000 a month or $100,000 a year.

High business debts

Lenders often don’t want to work with businesses that are already juggling several different types of debt repayments — you might not be able to afford to take on more. If repaying your current debt load doesn’t leave much wiggle room, consider paying off those loans first before taking out another.

Unpredictable cash flow

If your business spends more than it makes or has seasonal sales, you might also struggle to qualify for a business loan. Lenders often prefer to work with businesses that are predictable. Some also require businesses to be cashflow positive to be eligible for financing.

Low personal credit score

Your business credit score typically doesn’t hold as much weight as your personal credit score for two reasons. One, business credit scores aren’t as widely used as personal credit ratings. And two, many business lenders require a personal guarantee from business owners. This means you’re on the hook for paying back the loan if your business fails. If you don’t have good credit, your personal guarantee might not mean as much.

4 tips to qualify for a business loan in a high-risk industry

Looking to increase your odds of getting approved for financing? Follow these tips:

1. Have a business plan. Your business plan is where you get to make a case for yourself and your business. Having a detailed, professional strategy outlined could help put your lender at ease and up your chances of getting approved.
2. Ask questions. Not all lenders advertise which industries they’re willing to work with. To avoid applying for a loan you were never going to get, reach out to customer service to make sure your business is eligible first.
3. Pay off other debts first. Having less debt on your business’s plate can free up money to take on another loan and make your business more attractive to a lender.
4. Offer collateral. Backing your loan with collateral makes it a lot less risky for the lender — though you could lose these assets if your business can’t pay back the loan.

Bottom line

While your loan options are limited as a business in a high-risk industry, it’s not impossible to get financing. Backing your loan with collateral and working with local lenders could even help you score favorable rates and terms. But if you don’t have collateral or struggle to meet other lender requirements, it can get expensive.

Curious about other types of business financing? Read our guide to business loans to learn how it all works and compare lenders.

Frequently asked questions

• How hard is it to get a startup loan?

  Since lenders take time in business and revenue into consideration when you apply for financing, startup loans can be hard to come by. Learn about your options by reading our guide to startup financing.

• Can I get a high-risk business loan with bad credit?

  You can, though your chances of qualifying for a large amount at a competitive rate are even more slim. You might have better luck with factoring, a merchant cash advance or a short-term business loan.

• Do high-risk business loans require a personal guarantee?

  Most types of business financing require a personal guarantee from a business owner, including high-risk business loans. Check out our page on personal guarantees on business loans to learn exactly how this works.